The Tests Of Monetary Base Rules In Chinese Monetary Policy

It is necessary for People's Bank of China to a find a set of suitable instrument rules for our market economy if People's Bank of China want to achieve the targets of the stability of inflation and the growth of GDP. There exists the question of "controllability" when money supply was taken as intermediate objective of monetary policy. In this case, is it appropriate to take monetary base as intermediate objective of monetary policy? Shall we take it as the theoretical reference of the policy decision—making? In order to find new and "controllability" intermediate variable, it is of great theoretical value and reference significance for the central bank to introduce MaCallum Rules.MaCallum rules targets at stabilizing nominal income (Nominal GDP) , which can help to achieve the stability of nominal income, output and inflation to some extent. Theoretically, this kind of rule of monetary base is an ideal instrument rule. Through applying a series of methods, such as theory research and empirical research, the qualitative analysis and the quantitative analysis, the historical studies, the graph analysis and the comparison and so on, we have answered well the former questions from an empirical perspective.The results of empirical tests show that monetary base rules can not simulate the actual movement path of monetary base in our country. This is because our country's monetary base supply has certain characteristic of endogeneity, which causes policy dilemma, such as the PBC's "passive" open market operation. Therefore, it is inappropriate to take monetary base as the intermediate objective of monetary policy.However, through the contrast of the simulation and the actual movement path, we can find that monetary base rule to some extent plays an important role in the direction of our country's monetary policy, especially in the direction of the change of the monetary base. It tended to ask for enhancing the monetary base supply before 2000. Then the instruction was not clear from 2000 to the end of 2003, and an intensely tighten instruction have been shown since 2004.The innovation of this paper is the appliance of empirical analysis to the research of the serviceability of the monetary base rules in the monetary policy of our country. This paper not only tested the standard MaCallum rule, moreover, it inferred the reaction functions of the monetary base and tested them using econometrics methods.